Impact Of The Coronavirus On The Entertainment Industry: Event Cancellation Insurance Claims

The impact of the coronavirus pandemic is widespread, and the entertainment industry has been substantially impacted.  There will be a floodgate of event cancellation insurance claims.  In fact, every business sector across the globe has been affected at its core. Governments are issuing quarantine orders to regions and cities disrupting daily schedules.  These orders lead to a halt of the travel industry.  Travel has essentially been reduced to a minimum. This has caused many businesses to cancel events. In addition, stay at home orders and quarantines have forced the workforce to be absent.  Moreover, the ripple effect of factory closures or other business shutdowns have substantially impacted nearly every industry.

Undoubtedly this will leave many businesses with economic challenges trying to recoup some of the losses. Many would look towards their insurance policies for assistance, which is why it is important to understand the various policies and its application in this unique situation.

Entertainment Event Cancellations

In the face of the pandemic, the entertainment and sports  industry has gotten a big hit with many events being either cancelled or postponed. For many entertainment industries, this is the first time they face cancellation due to a health crisis. This new situation leads to an array of problems and a careful examination of insurance policies and coverage. Furthermore, insurance carriers who offer “event cancellation” policies and their insureds will face uncharted waters when adjusting losses from this novel coronavirus.  

The controlling factor in determining these issues will be explicit language in the insurance policies.  When looking over your business insurance the wording of the insurance policy plays the key role. It is important to work with an experienced attorney because the insurance companies will most likely deny any insurance claim due to the coronavirus.  Legal counsel must zealously advocate on behalf of their clients and create arguments that support insurance coverage due to the losses suffered as a result of the coronavirus pandemic.     

What Is Event Cancellation Insurance?

Due to the fact that there are different types of “events”, it is important to note that there is no “standard” policy for an event cancellation. Some insurance wordings expressly afford coverage for “communicable” or “infectious” diseases. Other wordings expressly exclude communicable diseases from coverage.  For example, many insurance policies include the following or similar language: “This insurance does not cover any loss directly or indirectly arising out of, contributed to, by or resulting from any Communicable Disease or fear or threat thereof (whether actual or perceived).”

“Communicable disease” means a disease of which its causative agents may be carried from a person to an animal or vice versa directly or indirectly. 

Policies that exclude communicable disease will most likely deny insurance coverage for losses obtained during the Covid-19 pandemic. 

For policies that remain silent regarding communicable diseases, coverage will depend on the type of loss to determine coverage.  Again, the express language in the written insurance contract will be determinative.   

Proximate Causation

Was the Event Cancellation Caused By The Coronavirus?

Insured’s will also need to prove “Proximate Causation” between the cancelled event and the coronavirus pandemic.

 Proximate causation refers to a cause that directly results in an event that would otherwise not have happened (in this case the cancelled event).  Not only must the cancellation of an event be factually caused by the coronavirus – that is, but for the pandemic the event would have proceeded – but, the pandemic must be the legal proximate cause. The cancellation or postponement of the event must be “the sole and direct result of a cause not otherwise excluded.” This policy language means “a cause that directly produces an event and without which the event would not have occurred.”  The burden to establish this causal link rests with the insured.  

In regards to the coronavirus pandemic, coverage may be afforded to those that can successfully prove the causal link between the canceling or postponement of an event to Covid-19.  Insurance companies will surely argue that the cancellation may have been due to some other cause, such as the downward state of the world economy – not directly because of the coronavirus.  The insurance companies will attempt to create a murky fact pattern in order to escape providing coverage for the loss.  The insurance companies will allege that multiple factors caused the event cancellation.     

However, because the floodgate of event cancellation insurance claim lawsuits will be cases of first impression with the courts, it is most likely the courts will look to precedent from property insurance claims.  It is likely that courts throughout the United States will revert to that body of case law to resolve any causation issues that arise as the pandemic continues.

For example, courts have adopted three different causation doctrines that they may apply to event cancellation insurance claims. The doctrines include:

  1. Efficient proximate causation: The relevant cause is the one which sets the loss in motion. Some courts may rule that the relevant cause is the initial peril that set the other events in motion.
  2. Concurrent causation: Any loss caused by a combination of covered and excluded perils is covered. 
  3. Proximate or Immediate causation: Courts look at the proximate or immediate cause which led to the loss without looking at any earlier cause which could have set off a chain reaction.

Depending on the jurisdiction, courts may look at the “totality of the circumstances”  and apply “reasonable probability”.  That is, “all the circumstances surrounding the loss, including whether a peril insured against came directly or indirectly within such proximity to the property insured that the damage it sustained can be considered ‘within the compass of reasonable probability’.” Montefiore Med. Ctr. v. Am. Prot. Ins. Co., 226 F. Supp. 2d 470, 478 (S.D.N.Y. 2002).

What Are Some “Intervening Causes” That May Impact How Event Insurers And Their Insureds Address Coverage? 

A supervening intervening cause is an event that cuts off liability and will allow the insurance company to escape providing coverage.  Insurance companies will assert the following intervening causes for the cancellation of events.   

Downward Economy

The entertainment industry has not been spared from financial complications. Many states have imposed shelter-in-place orders and have closed non-essential businesses, schools, and venues. Some states even imposed restrictions on citizens to move freely across state lines. All these measures have a toll on the economy with an impact that will be felt for years.  

A group that immediately felt the brunt of these restrictions are organizers of festivals and trade shows. Cancelling these types of events led to a potential loss of tens of millions of dollars which may adversely impact future festivals and trade shows. Even with refunds and credits towards future shows, many of these attendees will be unable to recoup their expenses or continue their businesses. This is critical because it will impact future conferences and events in the form of fewer attendees, exhibitors, and sponsors. 

Not only that, but a global recession will impact consumer spending including money spent on leisure activities such as concerts and festivals. Plus, it is unknown how long it will take the public to be comfortable to gather in large crowds. Insureds seeking coverage for their losses will have to demonstrate that the coronavirus proximately caused the cancellation or postponement of their event – not due to the lack of consumer spending.  In fact, many event cancellation policies expressly exclude “any loss directly or indirectly arising out of, contributed to by, or resulting from withdrawal, insufficiency or lack of finance; the financial failure of any venture; financial default, insolvency, or failure to pay of any person, corporation or entity; and/or lack of financial or other support or withdrawal of such support.”

To some extent that event cancellation policies afford some form of coverage for “communicable disease”, the insurance companies will argue that the event was in fact cancelled due to some other financial economic downturn, rather than directly caused by the coronavirus.  This is especially true as time goes on and as consumers spend less.  There will be broader financial impacts for the years to come and the insurance companies will undoubtedly point to these reasons for event cancellations in order to escape coverage. As the widespread economic fallout continues and the spread of the coronavirus slows, it likely will become more difficult for insureds to prove the necessary causal link to the coronavirus as the proximate cause of the cancellation or postponement. 

Travel, License, and Permit Restrictions

The lockdown orders that many countries imposed will lead to many flight cancellations, difficulty to obtain permits, licenses, and visas. Insurance policies often exclude loss that is directly or indirectly caused by the inability to obtain necessary licenses, visas, permits, and approvals.

Terroristic Threats Of Exposure To Coronavirus

There has been a rise of reports involving people who intentionally expose or threaten to expose others to Covid-19. A recent memo from the department of justice states those “who intentionally spread the novel coronavirus could be charged with terrorism for the purposeful exposure and infection of others.” This provision might complicate the causation analysis. 

Generally, event cancellation policies exclude terrorism. Additionally, some event cancellation policies exclude “the actual or threatened malicious use of pathogenic or poisonous biological or chemical materials.” If an insured were to submit a claim that Covid-19 could be used to terrorize public gatherings, there likely is no coverage.  The act of terrorism or malicious use of the Coronavirus pathogen will be considered intervening causes.

Public Protests And Riots

Rebellion implies an “open, organized, and armed resistance to an established government or ruler…usually through violence,” but it can also be the “disobedience of a legal command or summons.” Revolution implies the “overthrow of a government, usually resulting in fundamental political change, essentially a successful rebellion.” There have been various protests throughout the country and world, but it is unlikely that any of the protests meet the criteria of a rebellion or revolution. 

That said, some governments have expressed concerns that widespread rebellion and protests may ensue if the lockdown of entire citizenries continues for an extended period of time, leading to potential unemployment and poverty for many.  If that were to become a reality, event cancellation losses directly related to these occurrences likely would be excluded. The acts of violence coupled with the intent to “overthrow government” will arguably amount to an intervening cause.

Fear of Public Gatherings

A reduction of attendees at events is expected due to the fear of crowded venues or due to economic restraints. Event cancellation policies generally exclude any reduction in attendance that is not specifically attributable to the necessary cancellation or postponement of the insured event. Postponed or cancelled events that see reduced attendance when the event is ultimately rescheduled may be excluded from coverage for loss in attendance.  The insurance companies will argue that the loss is due to another factor such as the public’s fear – not due to the coronavirus.  

Entertainment Event Cancellation Insurance Claim Lawyer

It is important to work with an experienced attorney when attempting to submit an event cancellation insurance claim.  The insurance companies will attempt to blur the facts and deny the claims.  As time goes on, the facts and causes for event cancellations will become more murky.  It is best to submit an insurance claim as soon as possible in order to show proximate causation.  Legal counsel will need to review the explicit language of the insurance policy provisions and exclusions, and ultimately create persuasive arguments for coverage.  Lawsuits will most likely be filed with the courts due to denied insurance claims.  Contact The Sterling Firm to speak with an experienced attorney.  We are here to help! Call 310-498-2750